The court found the immediate taxation of unrealised capital gains on the transfer of place of residence or of the assets of a company established in Spain to another member state amounts to a restriction of the freedom of establishment.
Capital gains transferred between two entities both domiciled in Spain are not subject to corporate taxation until the transactions are actually carried out. The court ruled that this difference in treatment would be likely to deter a company transferring its activities from Spain to another member state.
The Court ruled Spain could preserve its powers in taxation matters by less harmful measures to the freedom of establishment. The ruling suggests the Spanish tax authorities could request payment of the tax debt following the transfer, at the point at which the capital gains would have been taxed if the company had not made that transfer outside of Spanish territory.
“The Spanish tax legislation should be aligned to the ECJ’s decision,” said Montserrat Trape Viladomat of KPMG. “Taxpayers could challenge any adjustment based on the above provision if the transfer has been done to an EU-domiciled head office.”
The European Commission has also brought infringement proceedings against Ireland over its exit taxation of companies that cease their tax residency in Ireland.
